Jeffrey Gundlach gives his insight on an array of issues, from geopolitics to global macroeconomics, in a recent interview.
He believes that the lockdowns and stimulus which followed created an economic pattern and new variables in the economy that made historical cycles less of a temperate of what will happen.
Are we in a recession, Jeffrey Gundlach gives his insight with his usual in-depth analysis
He notes the 2s and 10s yield curve has been inverted the longest in any time of his career.
An inverted curve suggests the US economy could be in a recession.
He noted that many of his contemporaries believed the recession started in 2023.
He cites M2, money supply, still being high when comparing the long-term M2 trend, which could have cushioned the downturn.
Jeffrey Gundlach cites two negative quarters of GDP and a very high cumulative inflation rate.
“Many food categories over the past four years are up 40 to 50% cumulatively, with some up 200 to 300%,” he said.
“Many food categories over the past four years are up 40 to 50% cumulatively, with some up 200 to 300%”
JEFFREY GUNDLACH
He notes increasing delinquencies of underlying loans indicate problems.
But Jeffrey Gundlach doesn’t think we are in stagflation yet, and when recession strikes, it will hit with a vengeance.
“The federal deficit is over 6% of GDP, Biden administration predicts it is going to be 6.1% of GDP for 2025,” he said.
Recessions tend to add to the deficit of about 4%, but he notes that figure was 9% in the last three recessions.
Jeffrey Gundlach gives his insight into some scary fundamentals
“It is plausible that we could have a deficit of at least 12% of GDP, which is scary because we already have all of this debt that we have to roll over.
People didn’t prepare mentally and invest wisely for all these bonds rolling off with coupons of 25 to 50 to 100 basis points; there are lots of them. There are 17 trillion in the next three years rolling off, and they will not be reissued, at 25 basis points.
If interest rates stay where they are higher for longer or if you talk about them being reissued at today’s rate structure at 400 and 500 basis points higher, which is a lot,” he said.
“If you issue a greater amount of treasury bonds with a full-blown recession, you have a crisis on your hands,” he added.
“If you issue a greater amount of treasury bonds with a full-blown recession, you have a crisis on your hands”
JEFFREY GUNDLACH
Jeffrey Gundlach believes the date is approaching when social security benefits will be reduced or the debt restructured.
The Chief Visionary Officer CVO says it’s 2034, but they are assuming a 4% deficit of GDP, 3% interest rates and no recession.
He believes we are already above that interest rate and deficit level, and the chance of having no recession by 2032 seems remote at best.
“I am going to say Social Security will run out of money without a restructuring by 2028, would be my guess,” he said.
“When analysts say something is never going to happen, it means it will imminently happen” – Jeffrey Gunlach
Jeffrey Gundlach gives his insight on the trajectory of Fed interest rates
He believes the Fed will not hold these rates into a recession, bearing in mind the debt obligations.
He sees the same Fed playbook playing out in a recession where interest rates are cut and QE implemented.
He acknowledged that during WW2 and the decade following, the Fed suppressed the 10-year treasury yield at 2% when inflation was around 8%.
“Once you get a clear picture of a recession, you will get a Pavlovian bond rally,” he said. “Bond yields will fall because everyone thinks that is how it works,” he added.
However, he is cautious about applying past patterns to the future. “When analysts say something is never going to happen, it means it will imminently happen,” he said.
Jeffrey Gundlach’s contrarian view on the US dollar is that it will weaken because of the responses to the recession.
He believes investors will then fret about the deficit and interest rate cuts being inflationary again.
He doesn’t like the 30-year treasury bond because he thinks it will be vulnerable to changing policies and instead advocates a risk-off portfolio of 5 and 10-year treasuries.
“It is fairly easy to put a fixed income portfolio fund with yields over 1.5%, a stock index fund, and it is not that dangerous,” he said.
“The average person understands the gravity of the problem of running on a debt-based scheme with no end in sight. It is no coincidence that Bitcoin is up year-to-date for the same reason” – Jeffrey Gundlach
Jeffrey Gundlach gives his insight on emerging markets
He is not that attracted to emerging markets because of the strong dollar.
When it comes to stocks, Jeffrey Gundlach likes long-term plays.
“I like India because it is everything China was 35 years ago,” he said.
He notes the tech industry is relocating from China to India and Mexico. He also likes Japan since it emerged from negative interest rates. He recommends 10% respective investments in India, Mexico and Japan.
Regarding Gold, Jeffrey Gundlach believes the run was due to people’s awareness that developed countries’ governments are out of control.
“The average person understands the gravity of the problem of running on a debt-based scheme with no end in sight.
It is no coincidence that Bitcoin is up year-to-date for the same reason,” he said.
Jeffrey Gundlach also acknowledges the troubling geopolitical situation and polarized domestic politics, which he believes is also why gold is strong.
“You are an Astridge with your head in the sand if you don’t think there is no social unrest in this country (US).
“This looks like 1968,” he said.
Young people are understandably mad at the 80-year-olds who are in the government.
How to avoid fatal mistakes; Jeffrey Gundlach gives his insight
He begins every day and every strategy, knowing he will not get it right every time. “If this goes wrong, how can you structure it so it will not be fatal?”, he said.
He recommends 15% in tangible assets and 35% in fixed incomes, and he thinks land is good to own.
He thinks if oil goes to 100 dollars, then there is no chance the Fed will achieve its 2% inflation target.
